CULTURAL DIMENSION AND PROFESSIONALISM AND UNIFORMITY OF
INTERNAL AUDITING PRACTICE
Université Catholique de Louvain
Louvain School of Management
Place des Doyens, 1
1348 Louvain-la-Neuve (Belgium)
Phone : +32 10 47 84 41
Fax : +32 10 47 83 24
E-mail : firstname.lastname@example.org
Waltham, MA, 02154-4705
Phone: (781) 891-2976
Fax: (781) 891-2896
We thank the Institute of Internal Auditors for providing us the data as well as the grant
to develop and the permission to use its Common Body of Knowledge in Internal
Auditing (CBOK 2006) data base for this study.
Gerrit Sarens is an assistant professor at the Université Catholique de Louvain and the
University of Antwerp (Belgium). He has published articles in journals such as
Accounting, Auditing and Accountability Journal; British Accounting Review;
International Journal of Auditing and Managerial Auditing Journal. His research
interests include internal auditing, corporate governance and auditing education.
Mohammad Abdolmohammadi is the John Rhodes Professor of Accounting at Bentley
University in Waltham, Massachusetts. His work on external and internal auditing has
appeared in many journals, including The Accounting Review, Auditing; a Journal of
Practice and Theory, Internal Auditing, International Journal of Auditing, and
Managerial Auditing Journal. His research interests include behavioral auditing,
acquisition of expertise and ethics.
CULTURAL DIMENSION AND PROFESSIONALISM AND UNIFORMITY OF
INTERNAL AUDITING PRACTICE
This study extends the literature on the impact of culture on the accounting and
auditing professions by investigating the relationship between cultural dimensions and (1)
professionalism of the internal auditing community in 45 countries; and (2) uniformity of
internal auditing practice in 32 countries. More specially, the hypotheses suggested by
Gray (1988) are adapted and tested using more recent cultural dimension data. We find
evidence that a professional internal audit community is more common in countries
characterized by a low level of uncertainty avoidance, collectivism and assertiveness. The
results also indicate that a high degree of uniformity of internal auditing practice is more
common in countries characterized by a lower level of power distance and collectivism.
Comparing the results by legal regime, we find culture to have more influence on
professionalism in civil law countries than common law countries. Finally, we find
economic development to be inversely associated with uniformity in internal auditing
Keywords: Internal auditing, professionalism, uniformity, culture.
Data Availability: Data used in this study are from third party sources
CULTURAL DIMENSION AND PROFESSIONALISM AND UNIFORMITY OF
INTERNAL AUDITING PRACTICE
The objective of this research is to investigate the relationship between cultural
dimensions (e.g., uncertainty avoidance, power distance) and (1) the professionalism of
the internal auditing community in 45 countries; and (2) the uniformity of internal
auditing practice between 32 countries. Prior research has documented great variability in
global practice of internal auditing (see Allegrini et al. 2006; Cooper et al. 2006; Hass et
al. 2006 for reviews), and the recent Common Body of Knowledge (CBOK 2006) study
in internal auditing conducted by the Institute of Internal Auditors (IIA) in approximately
100 countries also indicates high variation in practice of internal auditing world-wide
(Burnaby et al. 2007).
However, while the literature has consistently documented variations in internal
auditing practice, very little has been reported on the reasons why these differences exist.
The reasons investigated are mainly micro level conditions, such as the maturity of the
internal audit function (Sarens et al. 2009b), the influence of internal audit clients (Sarens
and De Beelde 2006; Sarens et al. 2009a) or risk management practices (Selim and
McNamee 1999; Allegrini and D’Onza 2003). An investigation of the impact of macro
economic conditions, such as gross national product (Abdolmohammadi and Tucker
2002) or corporate governance requirements (Cenker and Nagy 2004; Page and Spira
2004) remains rather limited. A primary reason for this deficiency has been the lack of
global comparative data. CBOK (2006) provides data for comparative analysis of various
The theory of cultural differences advanced by Hofstede (1980) and refined by
House et al. (2004) posits that cultural differences have significant effects on the
development and operations of various professional practices, including accounting and
external auditing.1 In this paper, we extend this line of research by investigating the
relationship between various cultural dimensions and professionalism and uniformity of
internal auditing practice world-wide. In other to test the relative strength of the cultural
dimensions in explaining professionalism and uniformity, we also investigate the impact
of the legal system (common versus civil law), economic development (GDP per capita
and GDP growth) and sources of financing (stock market versus credit market).
The study is also important because internal auditing is a profession that is less
regulated than the accounting and external auditing professions investigated in prior
research. For example, while accounting and external auditing professions are fully
mandated by law and regulated by professional and/or governmental bodies in many
countries, the practice of internal auditing has only recently begun to get the attention of
regulatory bodies in various countries. Data on the professionalism of the internal
auditing practice were obtained from the IIA. We identified 45 countries in which the IIA
had affiliates for which we also could find cultural dimension ratings from House et al.
(2004).2 The most recent Common Body of Knowledge study (CBOK 2006) provided the
data pertaining to the uniformity of internal auditing practice. Specifically, we use
responses from 1,961 Chief Audit Executives (CAE) representing 32 countries.
1 See Chanchani and MacGregor (1999) and Doupnik and Tsakumis (2004) for extensive reviews of this
2 The IIA’s affiliates are now called institutes. We use the old term, affiliate because that is what they were
called when CBOK data were collected.
We hypothesize and find evidence of a negative association between
professionalism in internal auditing and uncertainty avoidance, collectivism and
assertiveness. However, our analysis of the uniformity of internal auditing practices
indicates an unexpected negative relationship between uniformity and power distance and
an unexpected negative relationship between uniformity and collectivism.
The reminder of this paper is organized as follows. In the next section, we review
the extant literature and establish our research hypotheses. The study’s research
methodology is described in the third section, followed by the fourth section that provides
the empirical results. The final section contains a summary and conclusions from the
Background Literature and Hypotheses
Professionalism and uniformity were proposed by Gray (1988) as a framework to
explain accounting development in various cultural settings. These settings had been
proposed by Hofstede (1980; 1983) based on four cultural dimensions of uncertainty
avoidance, individualism, power distance, and masculinity. House et al. (2004) extended
Hofstede’s work and collected data from 62 societies to classify the societies into various
cultural clusters. All cultural dimensions were measured using a seven-point Likert scale.
We note that for most dimensions, ratings of Hofstede (1983) and House et al. (2004)
converge. For example, there is a significant positive correlation between Hofstede’s
power distance scale and House et al.’s societal power distance in the cultural practices
scale. Similarly, there is a significant positive correlation between Hofstede’s uncertainty
avoidance scale and House et al.’s uncertainty avoidance, and Hofstede individualism
scale is significantly and inversely related to House et al.’s institutional collectivism.
Finally, Hofstede’s individualism scale is significantly and inversely correlated with
House et al.’s in-group collectivism construct; and Hofstede’s masculinity scale is
significantly and positively related with House et al.’s societal assertiveness cultural
practices scale (House et al. 2004, 139-140). Table 1 provides a short description of the
four cultural dimensions included in Gray’s framework according to both references as
well as the convergent validity coefficients between both scales. Besides these four
dimensions included in Gray’s framework, House et al. (2004) added four more
dimensions: gender egalitarianism3, future orientation4, performance orientation5 and
human orientation6. Given the lack of theory, we stick to Gray’s framework and do not
formulate specific hypotheses for these four additional dimensions. Nevertheless, we will
include them in our empirical analysis for reason of completeness.
[INSERT TABLE 1 HERE]
Since Gray’s (1988) pioneer work, his framework has been used in other research
to explain the development of international accounting (Doupnik and Salter 1995),
financial reporting practices (Salter and Niswander 1995), ethical decision-making of
auditors (Cohen et al. 1995), the use of whistle-blowing as an internal control mechanism
(Patel 2003), accountant’s disclosure judgments (Tsakumis 2007), and earnings
management (Doupnick 2008). While significant variation has been found in the results
3 The degree to which an organization or society minimizes gender role differences while promoting gender
equality (House et al. 2004).
4 The degree to which individuals in organizations or societies engage in future-oriented behaviors such as
planning, investing in the future, and delaying individual or collective gratification (House et al. 2004).
5 The degree to which an organization or society encourages and rewards group members for performance
improvement and excellence (House et al. 2004).
6 The degree to which individuals in organizations or societies encourage and reward individuals for being
fair, altruistic, friendly, generous, caring, and kind to others (House et al. 2004).
using Gray’s (1988) framework, overall, these studies show that cultural differences have
significant effects on the development of accounting and auditing professions.
We examine the relationship between cultural dimensions and the development of
professionalism in 45 countries and uniformity in 32 countries. In the next sections we
present the arguments to establish our research hypotheses.
Professionalism in Internal Auditing
Professionalism is described by Gray (1988, 8) as “a preference for the exercise
of individual professional judgment and the maintenance of professional self-regulation”.
This definition is quite generic as it applies to accounting, external auditing and internal
auditing alike. However, there is a difference between the first two and the latter
professions. Specifically, accounting and external auditing professions have a long
history of professionalism in various countries and are usually mandated by governments
and regulated by professional bodies or governmental entities. However, formation of
professionalization in internal auditing is a more recent phenomenon in a large number of
countries and is even non-existent in some other countries.
Nevertheless, internal auditing has gained increasing acceptance as a profession in
recent years, driven by demands for more corporate accountability following the
fraudulent corporate scandals of recent years (e.g., Enron, Royal Ahold). This is because
a wave of corporate governance regulation has taken place in various parts of the World
to reduce incidence of corporate scandals. For example, the recent NYSE (2003) listing
rule requiring listed companies to have an internal audit function has enhanced the
standing of internal auditing as a profession in the U.S.
The professional body representing the internal auditing profession is the IIA. The
IIA was established in 1941 in the U.S. and has since grown into an approximately
150,000 member organization world-wide. This growing community of internal auditors
operates on a self-regulatory basis and is supposed to follow the IIA Standards, Code of
Ethics and a certification program (e.g., Certified Internal Auditor). Besides, the IIA has
endorsed a number of college and university programs for educating future internal
auditors. In addition to its numerous chapters in the U.S. and Canada, the IIA has affiliate
offices in almost 100 countries throughout the World.
The qualifying process to establish an affiliate is meant to organize internal
auditors into professionals who according to Gray (1988, 8) exercise “individual
professional judgment and the maintenance of professional self-regulation.” We consider
the age of an IIA affiliate as a proxy for the development level of its internal audit
professionalism. We argue that the longer a country has had its own IIA affiliate, the
longer the profession has reached its critical mass to engage in professionalism of its
internal auditing community.
Gray uses Hofstede’s (1980) cultural dimensions that distinguish different
cultures. According to Gray (1988), professionalism can be linked most closely with
individualism and uncertainty avoidance.
Uncertainty avoidance. Gray (1988) proposes that professionalism becomes stronger as
uncertainty avoidance weakens. Given that internal audit practices are not regulated, and
despite the existence of the IIA Standards, they are highly subject to interpretation at
local level. This may create uncertainty and ambiguity. Developing professional internal
audit practices requires flexibility and an open-minded attitude. Therefore, we assume
that societies characterized by a higher degree of uncertainty avoidance will progress
slower toward the creation of a professional internal audit community. Thus, we
H1a: Uncertainty avoidance is negatively associated with internal auditing
Individualism versus collectivism. According to Gray (1988) preference for
independent professional judgment is consistent with preference for a social framework
in which there is emphasis on independence, a belief in individual decisions and respect
for individual endeavor. We can argue that internal auditors who want to invest in their
own individual career (note that internal auditing is still considered as a stepping stone
for achieving higher organizational positions) are probably more motivated to invest in
the continuous improvement of their practices which is needed to professionalize the
internal audit community. We note that collectivism as defined by House et al. (2004) is
the opposite of individualism. Thus, we expect that institutional and in-group
collectivism to be negatively associated with internal auditing professionalism. Thus,
H1b: Institutional collectivism is negatively associated with internal auditing
H1c: In-group collectivism is negatively associated with internal auditing
Power distance. Finally, Gray (1988) argues that professionalism is more likely to be
accepted in societies where power-distance is short, concern for equal rights is high, and
people at various power levels feel unthreatened and prepared to trust other people, and
where there is a belief in the need to justify the imposition of professional codes of
conduct. In the context of this study, it can be argued that professionalization of the
internal audit function is the merit of everyone in the department regardless of the
hierarchical level. Every hierarchical level has its own specific contribution to the
professionalization of the function. While the Chief Audit Executive (CAE) is
responsible for setting and improving the methodology, lower staff members are expected
to implement this methodology on a day-to-day basis. In other words, professionalization
of the internal audit function is the joint effect of all internal auditors’ contribution. Thus:
H1d: Power distance is negatively associated with internal auditing
Masculinity and assertiveness. According to Gray (1988), there does not appear to be
any significant link between masculinity, the fourth cultural dimension proposed by
Hofstede (1980), and professionalism. House et al. (2004) replace masculinity with
assertiveness (which is a part of the definition of masculinity by Hofstede – see Table 1).
We do not have a theory or argument to formulate a directional hypothesis for
assertiveness and thus we propose the following null hypothesis:
H1e: Assertiveness is not associated with internal auditing professionalism.
Uniformity of Internal Auditing Practices
Gray (1988, 8) describes uniformity as “a preference for the enforcement of
uniform accounting practices between companies and for the consistent use of such
practices over time.” The IIA tries to accomplish uniformity in internal auditing by
establishing Standards, practice advisories, position papers, and other documents to
enhance uniform practice throughout the internal community worldwide. This so-called
“progress through sharing” is supposed to create consistent and comparable internal